Context on Apple's Decline


Apple shares are down by a quarter over the last three months (or have you heard that already?) What does it mean for shareholders? Should you worry?

Last week I sat down with Philip Tasho of TAMRO Capital Partners. He's a big Apple fan, so I asked him what he made of the decline and what he thinks about the company's future. Here's what he had to say (transcript follows):

Morgan Housel: What do you think of the pullback over the last six weeks?

Philip Tasho: This is a great company, and Steve Jobs said, "You just make great products and people will come and buy them," and that's really a fantastic strategy, and they've obviously been phenomenally successful in doing that.

I think the one thing, with such a large company at this point and relatively closed culture in terms of communicating to Wall Street, you get so many rumors out there that are true or not true until the company really talks about it. People look at the balance sheet, and there's a tremendous amount of cash on their balance sheet. Could they use that to buy back stock or initiate a dividend? Maybe that's something they could very well start to think about going forward. It's more of an opportunity.

Morgan Housel: To justify Apple's current valuation, you need to effectively assume that earnings are going to fall in the future, is that correct? It's currently trading at nine, 10 times earnings -- something like that.

Philip Tasho: I think what the market is discounting is that there's more credible competition than there has been for a long time for this company, particularly with the Android system that's coming out and Samsung's doing a phenomenal job itself also. So I think that's what's weighing on investors' minds. And, again, we're waiting for something massively innovative that is going to be revolutionary for the company.

Morgan Housel: Do you worry about a company like Apple that has to be massively innovative year after year after year, that sometime in the future they're not going to be able to hit home-runs like they have in the past?

Philip Tasho: Every company has to deal with that.

Morgan Housel: But you have other companies like, say, Colgate, that has been making the same toothpaste for the last 50 years, and they'll continue for another 50 years. Or Coca-Cola; that makes the same product. They don't need to innovate. Does it worry you that a company like Apple has to be that innovative?

Philip Tasho: Well, people see how well you're doing, and they want to copy you, and that copying is what breeds, you have to keep doing the same thing. So, sure, it's a short-cycle business, so you have to keep innovating in order to maintain your position.

More on Apple
There's no doubt that Apple is at the center of technology's largest revolution ever and that longtime shareholders have been handsomely rewarded. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on reasons both to buy and to sell Apple, as well as what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thoughts on Apple, simply click here now.

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